A Witness Turns

By Jyoti Thottam

Enron's former chief accountant, Richard Causey, pleaded guilty to securities fraud last week. Causey will probably testify against ex-bosses Kenneth Lay and Jeffrey Skilling. Here's what the plea could mean for their trial, set to start Jan. 30.

Who is Richard Causey? Although the career accountant had kept a lower profile, Causey was scheduled to go on trial with Lay and Skilling. Like Andrew Fastow, the mastermind of Enron's shady financing, Causey reported directly to the top two execs. He handled the accounting for the "off--balance sheet partnerships" designed by Fastow that sank the Houston energy firm.

What did he do wrong? Causey pleaded guilty to just one of the 36 counts in his indictment, for using Enron's financial statements to mislead investors and regulators. Unlike Fastow and some other executives, Causey was never accused of enriching himself at shareholders' expense. He faces five to 10 years in prison.

What would he testify about? Causey was with Lay and Skilling at meetings in which Enron's mounting debt and losses were discussed. He can also connect the dots for the jury, explaining Fastow's complex hidden deals.

Can Causey bring down Skilling and Lay? Their lawyers have always maintained that Lay and Skilling knew nothing about Fastow's schemes. If the chief accounting officer says Skilling or Lay knew, says David Berg, a financial-crime trial lawyer in Houston, "it would be a fatal cancer for the defense." But since Causey had been on the defense's side, those lawyers could ask that his testimony be disallowed, arguing that he knows too much about their strategy. Failing that, they will try to tarnish him with praise. Causey is an honest man, they say, who admitted to a crime he didn't commit to avoid the risk of a trial. Prosecutors can also now focus their case on Lay and Skilling, giving them the advantage of a shorter, simpler trial.

With reporting by Reported by Wendy Grossman